The Economy in Digits – 12/21/2013


Welcome to Economy in Digits, my new weekly segment that briefly covers significant economic indicators released in the past 7 days. Initially, I didn’t want to write a post for every single indicator that makes the headlines. That would mean that I would have to bombard this blog with post after post of statistical data, which is not why I created this blog. I created it in order to inform my readers about significant global issues AND also keep it interesting and enjoyable at the same time. However, economic indicators are significant and sometimes we receive data that hints where a nation’s economy is headed. Thus, I decided to sum up indicators released in the prior week in a single post.

United States

In the United States, November industrial production, which measures output in the utilities, mining and manufacturing sectors rose 1.1% from the prior month. That was the biggest increase over the last year and brought total US industrial output to its pre-recession levels. The manufacturing sector increase 2.9% from a year earlier thank to rising automobile sales. Meanwhile, the utilities sector expanded by 3.9% due to increased demand in the winter for heating and output in the mining sector increased by 1.7% as several oil rigs that were closed last month due to tropical storm Karen reopened. The graph below depicts total US industrial output for the last 10 years.

fredgraph

Again in the United States, 3rd quarter GDP growth rates, was revised upward from its initial figure of 3.6% to 4.1% from a year earlier.The revision came mostly due to the adjusted increase in consumer purchases. The graph below depicts quarterly US GDP growth rate over the past 10 years.

fredgraph (1)

Both the industrial production and the revised GDP figures prove that the American economy is hastening on the road to recovery. The fact that these figures are coming out shortly after a period of fiscal instability is also impressive. However, we also have to see the effects tapering of QE by the FED will have on the economy.

Japan

Despite the push by Prime Minister Shinzo Abe to devalue the Yen and drive exports up, Japan’s trade deficit increased as exports fell by 0.2% and imports rose by 3.5% month on month. When a nation devalues its currency, its exports are supposed to increase and its imports are supposed to decrease. However, there are two possible reasons for Japan’s widening trade deficit. The first reason is due to a concept in economics called the J-Curve, which states that devaluing a national currency will initially increase the trade deficit because trade contracts set in place cannot be adjusted during the short run. Once old contracts are expired or cancelled, new trade agreements will be made given the devalued currency. Another possible reason for Japan’s trade deficit is that Japan closed almost all of its nuclear power plants following the Fukushima disaster in 2011. Thus, Japan imports almost all of its energy now. A devalued currency means that Japan must now pay more to import its energy from abroad.

United Kingdom

In the UK, inflation fell to 2.1% from 2.2% last month due to steady food and energy prices, which bring the figure to its lowest since November 2009. Just two days later, it was also announced that the unemployment figure in the third quarter fell to 7.4%, down from 7.7% in the second quarter. Following the recession, the Bank of England promised to leave interest rates at record low levels until unemployment dropped to 7% and promised to bring inflation down to 2%. Over the past few years, it was failing to achieve both targets. But these two indicators prove that the UK economy is improving and is nearing its twin targets. If inflation and growth follow the same trajectory, we could see a hike in interest rates by the BOE sometime in 2014.

India

In India, wholesale inflation increased by 7.52% from a year earlier, compared to a 7% increase in October. The expected rate by a survey of economists was 7%. Inflation is becoming a serious issue in India where consumer prices also increased by 11%  last month from a year earlier. An even bigger problem is that inflation is being coupled with a slowdown in growth. The RBI predicts India’s economy will expand 5 percent in the 12 months through March 31st, the same pace as the last fiscal year, which was the weakest in a decade. If the RBI hikes interest rates to battle inflation, they will reduce the GDP growth rate even further. High inflation and weak growth can only mean one thing. STAGFLATION

That is all for this week. Tune in next Saturday for the upcoming week’s economic indicators.

Economics is a subject that does not greatly respect one’s wishes
-Nikita Khrushchev

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8 thoughts on “The Economy in Digits – 12/21/2013”

  1. Really very informative page. I like too much. Please don’t give up. This is given very widen and overall outlook to about world economics. Please keep inform. With my best wishes & regards.

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  2. Hi Ugur great stuff. India today PM says aimig for 5% GDP inflations unfortunately as the RBI governor confirmed on TV is not really a very reliable number I am not sure that GDP is either:) but deficits need work at present . that is it from India today.See if you can access TOI and or Economic Times or Business Standard if India is an area of interest. If busy ,fdont bother mostly local news with exceptions being what is of interst to the very active business community. apologise for errors in typing 4 at my count.. have a good day 🙂

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  3. Hello Anu. Sorry for the late reply. I greatly appreciate your input. I usually refer to TOI regarding news about India. In Ian Bremmer’s book, ‘Every Nation for Itself: Winners and Losers in a G-Zero World’, he states that one of the main causes for inflation and stagnant growth to occur at the same time is inefficient and inadequate public investments. If funding for public investment such as roads, ports and airports are insufficient, then companies have trouble operating their supply chains and moving goods around. This not only slows the growth in the economy but also increases prices because of a decrease in supply. I know that despite its rapid economic growth in the last several yeas, India’s public investment sector is still lacking. Therefore, India could remedy this problem by spending more of their budget on public investment projects.

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  4. GDP next year in India 5.7 according to workers and I am at 5.5 to 6.1 so lets see where it ends up . this is for 2014 it is just that the results are out in either february or march.. bye regards . some delay as I am doing too many things and all of them gently 🙂

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  5. Don’t worry Anu. I’m also busy with work and other projects I have going on. I appreciate your feedback no matter when you post it.

    I think the outlook on India has improved over the past several months. The new Central Bank governor, Raghuram Rajan seems to have a good understanding of the economic climate in the country and has been able to reduce inflation. Hopefully, the party that will obtain power once the elections are over will start much needed economic reforms right away.

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